Purchasing Power Parity - PPP

A theory stating that over the long term the exchange rate between two currencies adjusts according to currencies' relative purchasing power.

Investopedia Commentary

In other words, the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency. For example, a chocolate bar that sells for CAD $1.50 in a Canadian city should cost USD $1.00 in a U.S. city when the exchange rate between Canada and the U.S. is 1.50 CAD/USD. (Both chocolate bars cost USD $1.00.)

Related Links

Economic Indicators to Know
Floating And Fixed Exchange Rates
Dual And Multiple Exchange Rates
Forces Behind Exchange Rates
Economics Basics Tutorial

See also: Deflation, Economics, Inflation, Purchasing Power

Also spelled: PPP